EMPLOYMENT STATUS OF SELF-EMPLOYED WORKERS AT SOAS, UNIVERSITY OF LONDON: GUIDANCE FOR MANAGERS
1. Introduction
1.1 SOAS, University of London (the School) is required to ensure that payments to individuals who provide a service to the School are treated appropriately in respect of personal tax and National Insurance (NI) deductions.
1.2 Determining whether or not an individual’s payment should be subject to PAYE (Pay As You Earn) personal tax and NI deductions must be carried out by a representative of the School prior to any contracts being issued whether they are written, verbal or implied and before any work is undertaken.
1.3 The following HMRC guidelines are intended to provide support and advice to the School’s managers in determining the employment status of current and future workers providing services to the School and to assist in developing good practice and minimising the risk of contravening HMRC regulations.
2. Background
2.1 When the School enters into contracts known as “engagements”, HMRC has confirmed it is the School’s responsibility to decide whether the engagement is one of employment (where the individual would become an employee of the School and be paid, and have tax and NI deducted, through the School’s payroll) or self-employment.
2.2 It is often difficult to make a judgement whether someone should be treated as being employed or self-employed where that individual may have been working at the School on a regular, ad-hoc basis or for a lengthy period of time. The School cannot rely on an individual simply telling us whether they are self-employed or not. The School has to made the decision.
3. Determining employment status
3.1 HMRC publishes guidance for employers to assist in determining whether the nature of the engagement is a contract of service (worker) or under a contract for services (Self-Employed independent contractor). Given this HMRC advice, it is absolutely necessary therefore for the School as employer to examine the real nature of the relationship between the School and individuals especially in terms of what the parties call their relationship, or what they consider it to be, is it not immediately clear.
3.2 As a general guide, if the answer is “yes” to all of the following questions, then HMRC would determine that the individual is probably a worker and would be employed by the School and be paid and taxed through the School’s payroll:
· Do they have to do the work themselves?
· Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
· Are they required to work a set amount of hours?
· Can someone move them from task to task?
· Are they paid by the hour, week or month?
· Can they receive overtime pay or bonus payments?
If the answer is “No” to the questions above but “yes” to the following questions, it usually means that individual is self-employed:
· Can they hire someone to do the work or engage helpers at their own expense?
· Do they risk their own money?
· Do they provide the main items of equipment they need to do their job, not just the small tools that many workers can provide themselves?
· Do they agree to do a job for a fixed price regardless of how long the job may take?
· Can they decide what work to do, how and when to do the work and where to provide the service?
If the answer is “yes” to the second set of questions above, then the provider of the service is able to satisfy HMRC rules that they can be treated as being self-employed for the service that they are providing.
3.4 It should be noted that a person who is categorised as self-employed doing one type of work should not automatically be treated as self-employed for all types of work that they undertake.
3.5 The following HMRC link provides further information:
http://www.hmrc.gov.uk/employment-status/index.htm
4. Types of work to consider that will determine the individual’s engagement
4.1 The UK’s legislation in respect of income tax, social security, employment or discrimination sometimes distinguishes between certain types of worker by giving rights to some types and imposing duties on their engager (e.g. their employer). There is also no single definition of ‘worker’ which means that each body of legislation may define ‘worker’ and indeed ‘employee’ and ‘employer’ in quite different ways.
4.2 The School is required to make a decision based on the facts of each particular engagement. This procedure is designed to ensure that the School makes the correct decision and so minimises the risk to the School if the wrong type of employment status is determined (the penalty would be that the School would be liable for any tax and NI due on the payments made without recourse on the individual).
4.3 The decision is taken by the Engaging Officer. This person is a School employee who acts as the School’s representative in leading the particular piece of work an individual is being asked to provide.
5. The Procedure
This Procedure only applies to contracts with individuals. It does not apply to contracts that the School enters into with limited companies or partnerships (where there would be no personal tax or National Insurance risk to the School).
· For each contract, the Self-Employment status indicator tool http://www.hmrc.gov.uk/calcs/esi.htm should be completed by the Engaging Officer
· Completion of the Self-Employment status indicator tool is a mandatory of HMRC; without it being completed and the outcome recorded, no payment can be made to the individual
· If the Engaging Officer is in any doubt as to the individual’s employment status, the Engaging Officer should contact Natasha Williams 0207 074 5040 (Payroll Administrator) or the interim Payroll & Pensions Manager Marie Stacey 0207 074 5042 for advice and assistance
· If the individual is deemed to be an employee, they must be paid via the School’s payroll and will be subject to statutory deductions as appropriate. The Engaging Officer must ensure that the Payroll & Pensions Team is informed with sufficient advance notice in line with the monthly Payroll deadline dates (hyperlink) so that the individual is added to the School’s payroll in time for payment to be made
· If the individual is deemed to be self-employed then a signed copy of the Self-Employment status indicator form should be sent to the Payroll and Pensions Team with each invoice
· Invoices will not be authorised for payment unless the signed Self-Employment status indicator form has been received or if the form does not indicate self-employment
6. HMRC enquiries or audit of the School
It is very important that the School is able to show an accurate audit trail in the event of a HMRC enquiry or audit concerning decisions made as to whether an individual was self-employed or not.
7. Written contracts not verbal
The Engaging Officer’s department or directorate should ensure it has a written contract in place with a self-employed individual/consultant and must not rely on a simple verbal agreement. The written contract needs to record the reference to the HMRC Employment Status Indicator questionnaire result.
8. Eligibility to work checks for Self-Employed
8.1 Eligibility to Work checks is statutory for employees. However because employment status can be a grey area, the UK Borders Agency suggest that employers might wish to consider undertaking Eligibility to Work checks for individuals engaged on a self-employed basis.
8.2 To minimise the risk to the School, the Engaging Officer should therefore undertake the necessary eligibility to work check on the self-employed individual.
8.3 Evidence that this has been carried out will need to accompany the invoice.
8.4 For further advice please visit the following link to the HR web pages:
http://www.soas.ac.uk/hr/maninfo/guidelines/immigration/
9. Particular categories of potential self-employment
9.1 Careful consideration will need to be given to the following areas of potential self-employment:
· Visiting lecturers, teachers and tutors
· Personal Service Companies
· Managed Services Companies
9.2 This is because the type of work being carried out especially when using a Personal or Managed Services Company is not always classed as self-employment. For example, in some cases a person may be being paid for certain work as an individual but then produces an invoice for the same type of work using a Personal Services invoice.
9.3 Please note that up to 6 April 2012, HMRC applied special National Insurance contribution rules for teachers, lecturers etc. However, from 6 April 2012 that legislation was repealed. Therefore, for all periods after this date the status of teachers, lecturers and tutors should be determined purely by case law for both tax and National Insurance contributions.
10. Advice
As always, if in any doubt about an individual’s employment status, please contact Natasha Williams 0207 074 5040 or the interim Payroll & Pensions Manager Marie Stacey 0207 074 5042 for advice.
HR Directorate
December 2012